Petty Cash Book

Meaning of Petty Cash Book

A Petty Cash Book is a subsidiary ledger used to record small, day-to-day expenses incurred by a business. These transactions typically include minor expenditures such as office supplies, transportation, and small repairs. The petty cash system operates on an imprest basis, where a fixed amount of cash is kept on hand and periodically replenished to a predetermined level.

Examples of Petty Cash Uses:

1. Office Supplies: Purchasing pens, notepads, and other office materials.
2. Travel Expenses: Paying for cab fares or public transportation ticket fees for short trips.
3. Meal Reimbursements: Reimbursing employees for light refreshments or lunches purchased during work hours.
4. Minor Repairs: Expenses for small maintenance tasks such as changing light bulbs or fixing office furniture.
5. Miscellaneous Expenses: Other nominal expenses essential for daily operations, like postage stamps.

Frequently Asked Questions (FAQs)

What is the purpose of a Petty Cash Book?

The purpose of a Petty Cash Book is to provide an organized method of recording and tracking minor business-related expenses. It ensures accountability and accurate cash management within the organization.

How does the Imprest System work with petty cash?

The imprest system involves maintaining a fixed petty cash fund. When the fund is depleted, it is reimbursed to its original level with an amount equal to the petty expenses recorded. This system helps in close monitoring and control of petty cash expenditures.

Who is responsible for maintaining the Petty Cash Book?

The responsibility typically lies with a designated petty cash custodian, often an accounting clerk or office manager, who ensures that each expense is documented and that the petty cash fund is not misused.

How are petty cash transactions recorded?

Each petty cash transaction is recorded in the Petty Cash Book with details such as the date, amount, purpose of the expense, and the receipt of payment. These transactions are then periodically reviewed and reconciled with the remaining cash balance.

What happens if there is a discrepancy in the petty cash fund?

Any discrepancies in the petty cash fund must be immediately investigated. If an error or misuse is identified, corrective actions, including possible adjustments in internal controls, should be implemented.

Related Terms

1. Imprest Account: A fixed amount of money set aside for minor expenses, replenished periodically to maintain a consistent balance.
2. Voucher: A document evidencing a petty cash transaction, including receipts or expense forms, that provides proof and details of the expenditure.
3. Reconciliation: The process of comparing the recorded transactions in the Petty Cash Book with actual cash on hand to ensure accuracy and completeness.
4. Float: The initial amount of cash provided in a petty cash system, also known as the petty cash fund.

Online Resources for Further Learning

1. Investopedia: Petty Cash
2. Accounting Coach: Petty Cash System
3. Corporate Finance Institute (CFI): Petty Cash Management

Suggested Books for Further Study

1. Principles of Accounting by Belverd E. Needles
2. Financial Accounting: An Introduction by Pauline Weetman
3. Intermediate Accounting by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield

Accounting Basics: Petty Cash Book Fundamentals Quiz

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